ECON212 Exam 4
Refer to the diagram (Figure 27) for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be... -160 -210 -100 -180
160
Refer to the above graphs (Figure 31). A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph... -A -B -D -C
A
Which of the following is correct? -Both purely competitive and monopolistic firms are "price takers." -A purely competitive firm is a "price maker," while a monopolist is a "price taker." -A purely competitive firm is a "price taker," while a monopolist is a "price maker." -Both purely competitive and monopolistic firms are "price makers."
A purely competitive firm is a "price taker," while a monopolist is a "price maker."
Refer to the above graphs (Figure 26). The differences in the long-run equilibrium positions for a monopolistically competitive firm and for a purely competitive firm are illustrated by graphs... -B and C -C and D -A and B -A and C
B and C
The supply curve of a pure monopolist... -does not exist because prices are not "given" to a monopolist -is the same as that of a purely competitive industry -is its average variable cost curve -is that portion of its marginal cost curve that lies above average variable cost
does not exist because prices are not "given" to a monopolist
Answer the question based on the payoff matrix (Figure 32) for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. If Firm A adopts the low-price strategy, then Firm B would adopt the... -high-price strategy and earn $200 -low-price strategy and earn $175 -low-price strategy and earn $325 -high-price strategy and earn $250
high-price strategy and earn $200
A monopolistically competitive firm has a... -perfectly inelastic demand curve -perfectly elastic demand curve -highly elastic demand curve -highly inelastic demand curve
highly elastic demand curve
The copper, aluminum, cement, and industrial alcohol industries are examples of... -monopolistic competition -differentiated oligopoly -homogeneous oligopoly -interproduct competition
homogeneous oligopoly
Answer the question on the basis of the following information. (Figure 1) The marginal product of the fourth worker -is 7 -is 7 1/2 -is 5 -cannot be calculated from the information given
is 5
The demand curve faced by a pure monopolist... -is less elastic than that faced by a single purely competitive firm. -is more elastic than that faced by a single purely competitive firm -may be either more or less elastic than that faced by a single purely competitive firm -has the same elasticity as that faced by a single purely competitive firm
is less elastic than that faced by a single purely competitive firm.
Refer to the short-run production and cost data (Figure 6). The curves of Figures A and B suggest that... -marginal cost reaches a minimum where marginal product is at its maximum -marginal cost and marginal product reach their minimum points at the same output -marginal product and marginal cost reach their maximum points at the same output -AVC cuts MC at the latter's minimum point
marginal cost reaches a minimum where marginal product is at its maximum
The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that... -marginal product of the third worker is 9 -the third worker has to work with poorer-quality tools and raw materials -the firm will not want to hire more than three workers -the first worker puts forth more effort than the second and third workers
marginal product of the third worker is 9
In the diagram (Figure 10), curves 1, 2, and 3 represent the... -total, average, and marginal product curves respectively -marginal, average, and total product curves respectively -average, marginal, and total product curves respectively -total, marginal, and average product curves respectively
marginal, average, and total product curves respectively
In the diagram (Figure 4), curves 1, 2, and 3 represent the... -marginal, average, and total product curves respectively -average, marginal, and total product curves respectively -total, average, and marginal product curves respectively -total, marginal, and average product curves respectively
marginal, average, and total product curves respectively
Communist central planners didn't care about product differentiation, opting instead for a uniform design of products in order to achieve... -purely competitive markets -mass production and lower costs -higher prices and profits for their firms -allocative efficiency in society
mass production and lower costs
When a firm is maximizing profit, it will necessarily be... -maximizing total revenue -maximizing the difference between total revenue and total cost -minimizing total cost -maximizing profit per unit of output
maximizing the difference between total revenue and total cost
Refer to the diagram (Figure 9). If labor is the only variable input, the marginal product of labor is at a... -minimum at point a -minimum at point b -maximum at point a -maximum at point b
maximum at point a
In the short-run equilibrium, a monopolist's profits... -are positive if the product's elasticity of demand is greater than 1 -may be positive, negative, or zero -are positive if the product's elasticity of demand is less than 1 -are positive because of the monopolist's market power
may be positive, negative, or zero
An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of... -pure competition -monopolistic competition -pure monopoly -oligopoly
monopolistic competition
The restaurant, legal assistance, and clothing industries are each illustrations of... -countervailing power -homogeneous oligopoly -pure monopoly -monopolistic competition
monopolistic competition
Network effects and simultaneous consumption tend to foster the development of... -net social benefits -allocative efficiency -monopoly power -pure competition
monopoly power
Mutual interdependence means that each oligopolistic firm... -must consider the reactions of its rivals when it determines its price policy -produces a product identical to those of its rivals -produces a product similar but not identical to the products of its rivals -faces a perfectly elastic demand for its product
must consider the reactions of its rivals when it determines its price policy
Pure monopolists may obtain economic profits in the long run because... -of advertising -of rising average fixed costs -of barriers to entry -marginal revenue is constant as sales increase
of barriers to entry
Mergers of firms in an industry tend to... -transform monopolistic competition into pure competition -reduce the Herfindahl index for the industry -transform monopolistic competition into oligopoly -break up an oligopoly
transform monopolistic competition into oligopoly
Firms seek to maximize... -per unit profit -market share -total profit -total revenue
total profit
Refer to the diagram (Figure 30) for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be... -$16 -$10 -$13 -$19
$16
The graph (Figure 29) depicts a monopolistically competitive firm.In the short run, this monopolistically competitive firm will set the price at... -$65 and produce 35 units of output -$52 and produce 50 units of output -$50 and produce 35 units of output -$55 and produce 45 units of output
$65 and produce 35 units of output
Answer the question on the basis of the following information. TFC = Total Fixed Cost Q = Quantity of Output MC = Marginal Cost P = Product Price TVC = Total Variable Cost Average total cost is ________ - TVC/Q - (TFC + TVC)/ Q - (TVC - TFC)/ Q - TVC - MC
(TFC + TVC)/ Q
Accounting profits are typically... -smaller than economic profits because the former do not take implicit costs into account -equal to economic profits because accounting costs include all opportunity costs -greater than economic profits because the former do not take explicit costs into account -greater than economic profits because the former do not take implicit costs into account
-greater than economic profits because the former do not take implicit costs into account
The accompanying graph (figure 13) shows the cost curves for a competitive firm. If the market price falls to $0.55, the optimal output is... -more than 20, but less than 35 -20 -0 -15
0
Refer to the accompanying diagram (Figure 11). At the profit-maximizing output, total revenue will be... -ABGE -0AHE -0BGE -0CFE
0AHE
Refer to the diagram (Figure 3). At output level Q, total variable cost is... -BCDE -0AFQ -0BEQ -0CDQ
0BEQ
Refer to the graph (Figure 18) for a profit-maximizing monopolist. The firm will set its price at... -0J -0H -0G -0K
0J
Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct? -AP continues to rise so long as TP is rising -AP reaches a maximum before TP reaches a maximum -MP cuts AP at the maximum AP -TP reaches a maximum when the MP of the variable input becomes zero
AP continues to rise so long as TP is rising
Refer to the graph (Figure 5). Which one of the following would cause a move from point b on short-run average total cost curve ATC1 to point e on short-run average cost curve ATC2? -a decrease in the wage rate -increasing marginal returns -diminishing marginal returns -an increase in the wage rate
An increase in the wage rate
Refer to the above graphs (Figure 28). A short-run equilibrium that would result in losses for a monopolistically competitive firm would be represented by graph... -C -B -A -D
D
Dequam likes product variety, while Natasha is most concerned about paying the lowest price possible for a good. This suggests that... -Dequam cares more about productive efficiency, while Natasha cares more about allocative efficiency -Dequam prefers monopolistically competitive industries, while Natasha prefers purely competitive industries -Dequam prefers purely competitive industries, while Natasha prefers monopolistically competitive industries -Dequam cares more about allocative efficiency, while Natasha cares more about productive efficiency
Dequam prefers monopolistically competitive industries, while Natasha prefers purely competitive industries
Refer to the diagram (Figure 23). To maximize profits or minimize losses, this firm should produce... -E units and charge price C -M units and charge price N -E units and charge price A -L units and charge price LK
E units and charge price A
Which of the following statements is correct? -In the long run, purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits -Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn positive economic profits in the long run -Monopolistically competitive firms earn zero economic profits in both the short run and the long run -Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn zero economic profits in the long run
In the long run, purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits
Refer to the accompanying diagram (Figure 15). The firm's supply curve is the segment of the... -MC curve above its intersection with the AVC curve -ATC curve above its intersection with the MC curve -AVC curve above its intersection with the MC curve -MC curve above its intersection with the ATC curve
MC curve above its intersection with the AVC curve
If a technological advance reduces the amount of variable resources needed to produce any level of output, then the... -ATC curve will shift upward -AVC curve will shift upward -AFC curve will shift downward -MC curve will shift downward
MC curve will shift downward
Which of the following nations is not a member of the OPEC oil cartel? -Norway -Venezuela -Iraq -Iran
Norway
Refer to the accompanying diagram (Figure 16). The firm will shut down at any price less than.. -P1 -P4 -P3 -P2
P1
If the industry depicted in the graph (Figure 25) is purely monopolistic, the profit-maximizing price and quantity will be... -indeterminate on the basis of the information given -P1 and Q1 -P2 and Q2 -P3 and Q3
P3 and Q3
Which of the following is not a precondition for price discrimination? -The commodity involved must be a durable good -The good or service cannot be profitably resold by original buyers -The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand -The seller must possess some degree of monopoly power
The commodity involved must be a durable good
Which of the following does not necessarily apply to a pure monopoly? -The firm will charge the highest price possible -The product the firm produces must have no close substitutes -The firm must be the sole producer of a product -Entry must be blocked
The firm will charge the highest price possible
Which of the following represents a long-run adjustment? -a supermarket hires four additional clerks -Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants. -A farmer uses an extra dose of fertilizer on his corn crop. -A steel manufacturer cuts back on its purchases of coke and iron ore.
Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.
Which of the following is not a barrier to entry? -ownership of essential resources -patents -X-inefficiency -economies of scale
X-inefficiency
Which constitutes an obstacle to collusion among oligopolists? -trademarks and copyrights -a standardized product -prosperous economic conditions -a large number of firms
a large number of firms
If the demand curve faced by an individual firm is downward-sloping, the firm cannot be... -a monopoly firm -a monopolistically competitive firm -a purely competitive firm -an oligopolistic firm
a purely competitive firm
In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below... -average fixed cost -average variable cost -marginal cost -average cost
average variable cost
Refer to the two diagrams (Figure 22) for individual firms. Figure 1 pertains to ________, while Figure 2 refers to ________ -an oligopolist; a monopolistically competitive firm -a pure monopolist; a monopolistically competitive firm -an imperfectly competitive firm; a purely competitive firm -a purely competitive firm; an imperfectly competitive firm
a purely competitive firm; an imperfectly competitive firm
Pure monopoly refers to... -a single firm producing a product for which there are no close substitutes -a large number of firms producing a differentiated product -any market in which the demand curve for the firm is downsloping -a standardized product being produced by many firms
a single firm producing a product for which there are no close substitutes
Which of the following industries most closely approximates pure competition? -farm implements -agriculture -steel -clothing
agriculture
For a purely competitive seller, price equals... -average revenue -marginal revenue -total revenue divided by output -all of these
all of these
OPEC provides an example of... -a monopolistically competitive industry -noncollusive oligopoly -an international cartel -an unwritten, informal understanding
an international cartel
The MR = MC rule... -applies only to pure monopoly -applies only to pure competition -applies both to pure monopoly and pure competition -does not apply to pure monopoly, because price exceeds marginal revenue
applies both to pure monopoly and pure competition
The law of diminishing returns indicates that... -as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point -beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction -the demand for goods produced by purely competitive industries is downsloping -because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped
as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point
The basic difference between the short run and the long run is that... -economies of scale may be present in the short run but not in the long run -all costs are fixed in the short run, but all costs are variable in the long run -the law of diminishing returns applies in the long run but not in the short run -at least one resource is fixed in the short run, while all resources are variable in the long run
at least one resource is fixed in the short run, while all resources are variable in the long run
Refer to the diagram (Figure 17) for a purely competitive producer. The firm will produce at a loss at all prices... -below P1 -below P2 -between P2 and P3 -below P3
between P2 and P3
Three major means of collusion by oligopolists are... -cartels, kinked-demand pricing, and product differentiation -cartels, informal understandings, and price leadership -informal understandings, P = MC pricing, and mutual interdependence -market sharing, mutual interdependence, and product differentiation
cartels, informal understandings, and price leadership
Marginal cost is the... -change in average total cost that results from producing one more unit of output -change in average variable cost that results from producing one more unit of output -rate of change in total fixed cost that results from producing one more unit of output -change in total cost that results from producing one more unit of output
change in total cost that results from producing one more unit of output
Marginal revenue is the... -change in total revenue associated with the sale of one more unit of output -change in average revenue associated with the sale of one more unit of output -change in product price associated with the sale of one more unit of output -difference between product price and average total cost
change in total revenue associated with the sale of one more unit of output
Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should... -charge a higher price -retain its current price-quantity combination -increase both price and quantity sold -charge a lower price
charge a higher price
The kinked-demand curve of an oligopolist is based on the assumption that... -there is no product differentiation -competitors will ignore a price cut but follow a price increase -competitors will match both price cuts and price increases -competitors will follow a price cut but ignore a price increase
competitors will follow a price cut but ignore a price increase
Mutual interdependence means that each firm in an oligopoly... -depends on the other firms for its inputs -faces a perfectly inelastic demand for its product -depends on the other firms for its markets -considers the reactions of its rivals when it determines its pricing policy
considers the reactions of its rivals when it determines its pricing policy
In the graph (Figure 12), the amount of profit is measured by the gap between... -e and f -d and e -e and the horizontal axis -e and the vertical axis
d and e
The demand curve in a purely competitive industry is ________, while the demand curve to a single firm in that industry is ________ -downsloping; perfectly inelastic -perfectly elastic; downsloping -perfectly inelastic; perfectly elastic -downsloping; perfectly elastic
downsloping; perfectly elastic
Which of the following factors tends to foster the development of an oligopoly? -low barriers to entry -economies of scale -antitrust legislation -foreign competition
economies of scale
Refer to the diagram (Figure 21) for a pure monopolist. Monopoly output will be... -between f and g -f -g -h
f
X-inefficiency refers to a situation in which a firm... -fails to realize all existing economies of scale -encounters diseconomies of scale -is not as technologically progressive as it might be -fails to achieve the minimum average total costs attainable at each level of output
fails to achieve the minimum average total costs attainable at each level of output
A defining characteristic of an oligopolistic market is that there are... -many buyers -few sellers -many sellers -few buyers
few sellers
Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices? -firms like iTunes that distribute their products over the Internet -firms like UPS that use a fleet of gasoline-powered vehicles -companies that operate bus tours to popular vacation destinations -taxi cab companies and Uber drivers
firms like iTunes that distribute their products over the Internet
Refer to the diagram (Figure 24) for a non discriminating monopolist. Demand is elastic... -for all levels of output greater than q2 -in the q1q3 output range -only for outputs greater than q4 -for all levels of output less than q2
for all levels of output less than q2
Which of the following is most likely to be a variable cost? -real estate taxes -interest on business loans -rental payments on IBM equipment -fuel and power payments
fuel and power payments
The Herfindahl index... -tells us the degree to which monopolistically competitive firms are differentiating their products -tells us whether oligopolistic firms are engaging in collusion -is another name for the four-firm concentration ratio -gives much greater weight to larger firms than to smaller firms in an industry
gives much greater weight to larger firms than to smaller firms in an industry
An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called... -pure competition -monopolistic competition -oligopoly -pure monopoly
oligopoly
An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of... -pure competition -pure monopoly -monopolistic competition -oligopoly
oligopoly
One major barrier to entry under pure monopoly arises from... -the price taking ability of the firm -ownership of essential resources -diseconomies of scale -the availability of close substitutes for a product
ownership of essential resources
An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a... -copyright -franchise -patent -license
patent
Concentration ratios measure the... -degree to which product price exceeds marginal cost in various industries -geographic location of the largest corporations in each industry -percentage of total industry sales accounted for by the largest firms in the industry -number of firms in an industry
percentage of total industry sales accounted for by the largest firms in the industry
The demand schedule or curve confronted by the individual, purely competitive firm is... -perfectly inelastic -perfectly elastic -relatively inelastic, that is, the elasticity coefficient is less than unity -relatively elastic, that is, the elasticity coefficient is greater than unity
perfectly elastic
Refer to the provided graph (Figure 8), which shows the total product (TP) curve. At which point does diminishing marginal returns set in? -point d -point a -point c -point b
point b
When total product is increasing at a decreasing rate, marginal product is... -positive and increasing -negative -positive and decreasing -constant
positive and decreasing
Refer to the diagram (Figure 19) for a pure monopolist. If the monopolist is unregulated, it will maximize profits by charging... -price P1 and producing output Q1 -a price above P3 and selling a quantity less than Q3 -price P2 and producing output Q2 -price P3 and producing output Q3
price P3 and producing output Q3
If a particular bank regularly announces changes in its interest rate schedules before its competitors, who then set rates very close to those announced by that bank, this could be described as... -markup pricing -price leadership -predatory pricing -explicit price collusion
price leadership
Which of the following is not a characteristic of pure competition? -a larger number of sellers -no barriers to entry -pricing strategies by firms -a standardized product
pricing strategies by firms
Which of the following characteristics provide a monopolistically competitive firm some monopoly power? -product differentiation -significant barriers to entry into the industry -a low concentration ratio in the industry -price discrimination
product differentiation
Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because... -each firm has to take the market price as given -there are a few large firms in the industry and they each act as a monopolist -product differentiation allows each firm some degree of monopoly power -mutual interdependence among all firms in the industry leads to collusion
product differentiation allows each firm some degree of monopoly power
Which of the following is most likely to be a fixed cost? -wages for unskilled labor -expenditures for raw materials -shipping charges -property insurance premiums
property insurance premiums
The firm represented in this diagram (Figure 14), which gives short-run data, is selling under conditions of... -oligopoly -monopolistic competition -pure competition -pure monopoly
pure competition
If the several oligopolistic firms that compose an industry behave collusively, the resulting price and output will most likely resemble those of... -bilateral monopoly -pure competition -pure monopoly -monopolistic competition
pure monopoly
Other things being equal, a firm in a cartel will most likely cheat on a price-fixing agreement by... -secretly lowering price and increasing sales to a few customers -increasing price and restricting its output -secretly increasing sales to a large number of small customers -organizing promotions of the product
secretly lowering price and increasing sales to a few customers
A profit-maximizing monopolist facing the situation shown in the graph (Figure 20) should... -continue producing to make economic profits -continue producing as long as price is greater than marginal cost -shut down in the short run -continue producing to minimize losses
shut down in the short run
Implicit and explicit costs are different in that... -explicit costs are opportunity costs; implicit costs are not -the latter refer to nonexpenditure costs and the former to monetary payments -implicit costs are opportunity costs; explicit costs are not -the former refer to nonexpenditure costs and the latter to monetary payments
the former refer to nonexpenditure costs and the latter to monetary payments
If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes... -the law of diminishing returns -economies and diseconomies of scale -the law of diminishing marginal utility -X-inefficiency
the law of diminishing returns
A purely competitive firm will be willing to produce even at a loss in the short run, as long as... -the loss is smaller than its marginal costs -the loss is smaller than its total fixed costs -the loss is smaller than its total variable costs -price exceeds marginal costs
the loss is smaller than its total fixed costs
Answer the question on the basis of the following output data for a firm. Assume that the amounts of all non-labor resources are fixed. (Figure 2) Diminishing marginal returns become evident with the addition of the... - second worker -third worker -sixth worker -fourth worker
third worker
The MR = MC rule applies... -only when the firm is a "price taker" -only to purely competitive firms -to firms in all types of industries -only to monopolies
to firms in all types of industries
In the diagram (Figure 7), curves 1, 2, and 3 represent... -average fixed cost, average variable cost, and average total cost respectively -marginal product, average variable cost, and average total cost respectively -total fixed cost, total variable cost, and total cost respectively -total variable cost, total fixed cost, and total cost respectively
total fixed cost, total variable cost, and total cost respectively
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company? -use of savings to pay operating expenses instead of generating interest income -payments of wages to its office workers -economic profits resulting from current production -rent paid for the use of equipment owned by the Schultz Machinery Company
use of savings to pay operating expenses instead of generating interest income
A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price... -will vertically intersect demand where MR = MC -always exceeds ATC -will always equal ATC -equals marginal revenue
will vertically intersect demand where MR = MC